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17/10/2011 Moving towards a new European VAT system

The report on the future of VAT was voted upon by the European Parliament on Thursday 13th October in Brussels. It was highly anticipated and was adopted without problems. The European deputies’ proposal suggests three main measures : reform VAT to combat fraud, help small businesses and NGOs and implement a ‘green’ VAT strategy.

Ideas for IVA, exemptions and reduced rates

In his rapport David Casa invites member states to ensure  a large base for VAT. According to the Maltese deputy, the current financial climat poses significant challenges and the development of indirect taxes to the detriment of direct taxes Will not guarantee economic stability on its own. David Casa recommends the exploration of alternative and fair sources of revenue.

The author of the rapport

David Casa is from Malta.  He belongs to the European  peoples party group. As a European deputy he was charged with producing two very sensitive reports, on European fisheries funds and on Slovakia’s adoption of the single currency.

In the adopted text, the deputies wish to reduce the complexity, uncertainty and inefficiency in the current system, as well as finding as balance between the interests of the member states, businesses and citizens.

In order to do this a balance must be found between mantaining VAT revenues at a sufficient level, as it is still an essencial source of revenue, and ensure that there is no obstacle to useful activities.

The deputy said he was in favour of fighting against fraud (which currently costs the EU 100 billion euros in lost revenue) through reducing the number of various tax exemptions. The deputies also want to keep some intelligent Systems at the EU level, which would facilitate enterpreneurs and non-profit organisations to provide goods and services.

Excluding NGOs from VAT

The resolution calls on the European Commission to suggest a mechanism that would allow member states that wish to strenghten civil society by exempting all or the majority of the activities and transactions carried out by these associations from VAT, especially the smallest NGOs.

European deputies invite the commission and European countries to consider the adoption of an exemption threshold for SMEs that would be common thoughout the EU, so as to reduce charges and costs and to ensure better access to the domestic market. The deputies hope that NGOs will not have to pay VAT.

Green Vat strategy

European deputies recommend the implementation of a ‘green’ VAT strategy, based on reduced taxes for products that are enviromentally friendly so as to make them more competitive in comparison with non-ecological products which are produced  more cheaply.

Outlook

On 1st December 2010 the European Commission presented a green paper on the future of VAT.

The objective of this green paper was to encourage a wider debate for all stake-holders on the issue of evaluating  the current VAT system and the possible solutions to inprove its compatibility with the single market, and the reinforce its efficiency to make it a bigger sourse of income while reducing the cost linked to these regulations.

David Casa’s  report responds to the Commission’s green paper. I will be intergrated into the furture strategy on the future of VAT, which the European Commission should publish before the end of the year.


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